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Tax Foundation

by Joseph Bishop-Henchman

June 11, 2018

The U.S. Supreme Court adjourns for the summer soon, which means decisions in all pending cases are due to come down by the end of June. One of these is the South Dakota v. Wayfair case, challenging South Dakota’s application of its sales tax to internet retailers who sell into South Dakota but have no property or employees in the state.

At issue is the case Quill Corp. v. North Dakota from 1992, which set the property or employees standard for sales taxes using the Court’s (debated) dormant commerce clause power to restrict state taxation of interstate commerce. Lots of ink has been spilled on the Wayfair case, with 15 briefs filed in support of South Dakota, 22 filed in support of Wayfair, and two in support of neither (including the Tax Foundation’s: we think the South Dakota law is constitutional but other versions wouldn’t be, and want the Court to state a clear rule applicable to all taxes, not just sales taxes).

The case was argued on April 17. While many commentators going into it expected an easy path for South Dakota, justices expected to side with the state stayed mostly silent, ceding time to justices skeptical of South Dakota’s law (Justice Sonia Sotomayor began the argument with about five rapid-fire questions in a row), and several justices expressed frustration with disputed facts (such as whether South Dakota’s system is really complex or really easy) and whether Quill should be better overturned by the Court or by Congress. (Because of a constitutional wrinkle, Congress has the power to legislatively overturn the Quill decision but has not done so.) There was also recognition that the issue will not go away: finding in favor of South Dakota’s mild version may lead to more aggressive and damaging versions of the law; finding in favor of Wayfair may result in states instead passing a mandated mail-notice-to-all-your-customers regime as has been adopted in Colorado.